Total Hash Rate

Whether it is Bitcoin or any other cryptocurrency, computers participating in the mining process do not need to recognize them in order to contribute their hashing power to the network. All of these machines keep hashes locally, then communicate with the network, usually through the pool, when they have discovered and validated the last block.

Periodic variation is usually present, as block frequency tends to vary significantly and fairly frequently, but network difficulty tends to remain constant.

It is for this reason that the hash rate of the network is best expressed as a moving average. This is achieved by calculating the estimated hash rate of the network on a daily basis. To do this, the number of data blocks actually discovered in a certain time period is compared to the number of data blocks expected to be discovered at the same time and at the same speed.

This is not as simple as it seems, as the calculation involves the mining difficulty of the network and is not simply dividing the number of blocks by the time.

This mining difficulty ensures that 10-minute intervals are maintained and blocks are not randomly produced at a high rate, which could lead to unverified block inclusions. This affects the hashrate.

Generally, when the hash rate increases, the mining difficulty of the network also increases. This means that the results you end up with may not be completely accurate. If you can't average things properly, your hashrate graph might look weird. Also, it creates a lot of confusion if you don't use it as a moving average.

Mining Pools and Security

As mentioned earlier, if the hashrate of the blockchain network increases, your chances of earning mining rewards decrease. This situation is even more serious if you are mining alone. Most miners usually join a mining pool to increase their chances of winning, as these pools usually remove the luck factor from mining and add computing power. You are usually rewarded based on your hash rate.

Regardless of luck, your reward is guaranteed, albeit a small one. Hence, hashrate is once again an important factor in determining your crypto mining income. Most importantly, a higher hash rate will keep the network decentralized and well protected from any kind of external attack.

Block Difficulty

Block Difficulty, or Mining Difficulty, or simply Difficulty, is a network setting or a measure that indicates how much effort a miner needs to put in to find a new block and verify it before adding it to the blockchain via Proof of Work .

This proof or work on the web, more precisely, just refers to a piece of data. When the difficulty of finding the number falls below a preset difficulty target, the network protocol automatically and continuously changes that difficulty target. Miners need to keep hashing the head of the block to find or generate this number by competing with other miners within the network to be the first to come up with a result.

Miners need to repeatedly follow this hashing process until the algorithm produces the desired output and wins the reward within a predetermined difficulty target. In this process, miners consume a lot of computing power, because the proof of work consumes a lot of computing power. In crypto mining, the first miner to be able to create a unique transaction of its kind (known as a currency-based transaction) is rewarded with a fixed amount of newly minted currency or a transaction fee, as the case may be.

It is important to know that not all cryptocurrencies have the same block time.

Electricity and Taxes

Electricity costs are one of the biggest concerns for miners, who pay huge bills every month to keep their systems running 24/7. The higher the monthly bill, the lower the profit and vice versa. Therefore, electricity costs will have the greatest impact on crypto mining profitability.

Typically, the Bitcoin network's SHA 256 mining algorithm uses the proof-of-work consensus protocol to validate transactions made on the network.

This usually has a fairly high hash rate to power consumption ratio for any type of mining rig. However, ASIC miners have a lower ratio compared to GPU miners. This is because these machines are usually designed for crypto mining purposes and have a high hash rate or computing power. Therefore, these mining machines will be more efficient at validating a block, and the reward value will be much higher than the cost of electricity.

Even if you are mining in an area where electricity is cheap, it is always feasible, efficient and prudent to invest in ASIC mining hardware, regardless of its higher cost, simply because of its higher hash power. This will ensure that you don't end up paying high electricity bills with no return on your investment.

Paying taxes on crypto mining income is unavoidable, even if many people ignore or forget about it and end up finding themselves in trouble. The taxes you pay will determine your crypto mining profitability. The higher the tax, the lower the profit of crypto mining and vice versa. This factor makes the profits of crypto miners even thinner. Don't want to pay taxes while making a small income from crypto mining? The only way is to increase the hash rate of the mining machine. The best way is to use ASIC miners again.

So, make sure to factor in taxes when calculating your crypto mining profitability to find the exact amount you get from the process. There is an option to use a reliable crypto tax software to help you with this.

Summarize

The above is a brief introduction to several factors that affect cryptocurrency mining revenue. Cryptocurrency mining is a very competitive way to generate some passive income, but it's not that hard if you do everything right. Using suitable hardware with a high hashrate is critical to profitability, at least for now.